California Focus: 60 million Californians? Don't bet on it

The California Department of Finance issued a projection that the state population will grow from 36.5 million in 2006 to 60 million in 2050. Los Angeles County is projected to grow from just under 10 million to 13 million, while San Diego County, just under 3 million today, is projected to reach 4.5 million.

Frankly, there is good reason to doubt that will happen. What seems to be escaping everyone in California is that fundamental and very recent migration changes do not auger well for population growth, especially in the state's more established areas.

According to U.S. Census Bureau estimates, California's population growth rate has dropped substantially. In the past year, growth has dropped by two-thirds from its 2000-05 annual rate.

In Los Angeles County, growth has dropped by 90 percent from the 2000-05 rate. The early 2000s growth rate of Los Angeles County would have put it at a population of more than 10.5 million by the 2010 Census. At the 2005-06 growth rate, it won't reach 10.5 million by 2050.

Orange County isn't doing much better, with its population growth rate having fallen by two-thirds from the 2000-05 pace. The Census Bureau says the Los Angeles-Orange County metropolitan area has lost more than 900,000 domestic migrants since 2000. (Domestic migrants are people moving from one county to another. The term excludes the excess of births over deaths and immigration.)

San Diego, one of the nation's fastest-growing metropolitan areas since World War II, is also seeing its growth evaporate. The growth rate has dropped 80 percent compared with the 2000-05 annual pace. In fact, San Diego may want to apply for membership in the Rust Belt club, having lost more domestic residents since 2000 than charter members Pittsburgh, Cleveland and Buffalo.

Since 2000, the San Francisco-San Jose area has grown more slowly than Italy during the same period, losing a net 500,000 domestic migrants.

Many of the people fleeing the coastal metropolitan areas have settled inland in the state. Sacramento and Riverside-San Bernardino have made strong gains. Even so, growth was down 60 percent in Sacramento County and by two-thirds in San Bernardino County during 2005-06.

Riverside County continues to grow strongly. There also has been strong growth in parts of the San Joaquin Valley, including San Joaquin, Stanislaus, Merced, Fresno, and Kern counties. However, except for Kern County, growth rates are declining.

Despite this inland growth, California suffered a net outward domestic migration of more than 900,000 people during 2000-06.

What is going on? Try housing affordability. In the three large coastal metropolitan areas, median home prices have exploded to more than 10 times median household incomes. Historically, this "median multiple" has been 3.0 or less and remains so in many parts of the United States. People have moved inland to take advantage of lower housing costs. But now housing costs are escalating substantially inland and, not surprisingly, growth has slowed.

What is driving escalating house costs? The standard answer is that low interest rates have fueled excessive demand. But if low interest rates were the cause, Atlanta, Dallas-Fort Worth and Houston, the three fastest-growing metropolitan areas in the high-income world, would have experienced similar cost escalation. But they haven't - their median multiples all remain below 3.0.

In fact, California has brought the housing affordability crisis and the resultant slower growth on itself. California's strict and bureaucratic land-use regulation has driven the price of developable land through the roof. At the same time, areas with more liberal (yet environmentally sustainable) regulation have managed to preserve housing affordability. Median home prices are about $150,000 in Dallas-Fort Worth and Houston and $175,000 in Atlanta. There are similar, even lower, prices in many other areas.

California may be pricing itself out of the future. Given the choice between a rental unit 20 miles from the coast in San Diego and a 3,000-square-foot house on a third of an acre in the suburbs of Kansas City or Indianapolis, it is not surprising that places like the latter are now domestic migration winners.

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